One of the makers of the Showyou app. That's Ilie Nastase btw. I'm camera shy for a reason.

This is the second part of a three part series of posts on how television is changing and where the opportunities are. You can read the first post here.

I don’t make pictures just to make money. I make money to make more pictures.— Walt Disney

I recently began re-watching The Wire and it got me thinking about how that show got created, and how much television changed in the quarter century before The Wire first aired.

A five season series about gang violence, drug dealing and the drug wars, the devastation wrought by heroin and crack, racism, underfunded and broken public schools, the decline of the newspaper business and longshoremen’s unions? On a channel you had to pay for, with no ads? Impossible to imagine in 1979.

As a teenager in 1979 in the United States of America, one of the ways to cauterize your boredom on a Saturday night was to turn on the TV. At 9pm, among the four channels on the air (five if you were lucky), your best options were The Love Boat orBJ and the Bear.

If you were making television in the 1970s, the only way to make any money was through advertising, and the only way to make a lot money was to get the biggest possible audience share. So programmers at ABC, CBS and NBC worked feverishly to engineer a programming lineup as broad as possible in its appeal, with shows designed to entertain everyone and offend no one (as my colleague Andy Forssell points out, there were exceptions like Hill Street Blues and Seinfeld — but they were exceptions, not the rule).

Cable and satellite systems changed television in two fundamental ways. First, they expanded the supply of programming, allowing people to get dozens of channels the four or five they were used to. For the first decade or so cable systems mostly offered “more” — more choices, more channels, more things to watch, more ways to kill time. The programming wasn’t necessarily better than what you got on broadcast TV, but there was more of it, and it was more precisely targeted to the tastes of specific constituencies — sports and news junkies, teens, history buffs, soap opera addicts.

The second thing cable did was even more important — it persuaded consumers to pay for something they previously got for free. That simple change took decades to play out, but had huge implications over time. With revenues no longer determined only, or even mostly, by audience size for your shows, cable networks began to think instead about how many people paid for their channel (indirectly through affiliate fees, or slightly more directly by adding it as an a la carte premium channel in the case of HBO), how much they paid, and how they could increase both of those things.

It became more important to get some people to love your channel than a lot of people to watch it. ESPN is not the most popular channel (it’s frequently not even in the top 10 in audience size per night or per week) but commands over $6 per subscriber per month from cable operators — the most of any cable network, roughly twice what cable operators pay for all of Viacom’s channels combined — because hard core, passionate sports fans love it, demand it, and wouldn’t buy cable without it.

Independence from advertising freed HBO from having to worry about audience size for any of its shows, and allowed it to take bold creative risks — “It’s not television, it’s HBO.” Starting in the early-1990s, HBO learned that it could set itself apart from other premium channels, who all had the same movies and comedy specials, by investing in original series. The Larry Sanders Show ushered in two-decades of great, ground-breaking original series and a legion of imitators.

The evolution from an ad-supported business model to paid models resulted in programming that more consistently achieved greatness. It’s too simplistic to say paid-platforms guarantee better TV — a claim immediately undercut by the junk you can easily find still on cable. But by divorcing revenues from audience size, paid platforms do a better job of creating the conditions that allow creators and publishers to make something really great, and something we love.

As Ben Thompson wrote on his blog a few years ago, we hire TV to do a specific job. It’s done different jobs over time, but today, in 2015, it does one job for most people most of the time — it entertains us, mainly on the evenings and weekends (Thompson puts it somewhat different, and says it “provides escapism.”) One reason linear television held on against the assault of all our digital devices for longer than many expected is because it did that job better than any other medium.

The biggest OTT video platforms — particularly Netflix and Amazon — are challenging the hegemony of linear TV because they now do that job better for many. They have shown they can make programming we love just as much as linear TV, with shows like House of Cards, Orange is the New Black, Transparent, Bojack Horseman, Unbreakable Kimmy Schmidt, Sneaky Pete. And they go one step further, making it all available on-demand, and viewable on any device the viewer has. The on-demand OTT world is so different that we’ve adopted a new verb to describe how we watch now — binge. And so the moat that cable and satellite channels erected is cracking.

There is another reason we’re attracted to paid-services like Netflix and Amazon — no ads.

We want the distractions and interruptions kept to a minimum and we’re far more willing to pay for that. In fact, we get into a near state of rage when we’re besieged with commercials while catching up on a favorite show:

And so today Hulu announced it would finally offer an ad-free version of its service at a higher price. I don’t have data to prove this claim, but I have a hunch that our desire for immersive, ad-free escapism in the evenings and weekends has grown as we spend more time in front of other screens, on the ad-supported Stream, during the other parts of the day.

We want to use our time differently when we hire a service like Netflix on our evenings off or the weekends. We’re looking for stuff to get lost in and to love. We come for more than relief form boredom; we’re seeking enlightenment, transcendence, the suspension of disbelief.

And so the next television platform — meaning the one that joins the ranks of Netflix and Amazon Instant and perhaps one day even surpasses those services in power and popularity — will almost certainly have pay in its DNA in addition to being most at home on the TV. Because consumers have hired TV to do a job (provide escapism), and ads get in the way of that. And because the platforms with pay in their DNA are the most likely to provide the kinds of programming we can get lost in, and binge on.

One could look at this, as Pakman and many others do, and rightly conclude that the growing green wedge illustrating the explosion of time spent on mobile devices represents the future.

I look at this chart and see another opportunity. The largely unchanged and very large block in dark blue at the bottom — the four plus hours per day we spend watching live television — is now up for grabs. We’re at the beginning of a massive shift away from live linear television (cable & satellite) to on-demand over-the-top TV (Netflix, Amazon Instant, Hulu, HBO Go).

This shift is already well underway for some. Which age cohort is leading the switch away from linear TV to paid over-the-top video services? Millennials. These two charts tell the tale:

falling off a cliff

People of all ages are watching these OTT services on devices that might surprise you (hint, it’s not the phone). Connected TV streaming players (like the Apple TV, Amazon’s FireTV, Roku, or Chromecast) and laptops and desktops dominate.

And among all the age cohorts — surprise again! — millennials are the most likely to watch a service like Netflix through a connected TV device.

The data and trends are even more remarkable when you consider the penetration of connected TV streaming players is still relatively low (27% overall in the US as of January 2015, compared to 85% for smartphones among millennials) and in the early days (just a hobby for Apple, though rumors abound that that is about to change).

One big new business has already been built as a result of these changes (Netflix). And as more good services (HBO Go, Showtime Anywhere, ESPN, and others) are available through streaming players like the Roku or AppleTV, more people will buy those devices and use them. As tens of millions of Netflix fans have already learned, once you get used to the delights of the on-demand over-the-top TV, you don’t really want to go back to linear television. The opportunity on mobile is huge and will continue to grow, but building services and platforms for connected TV devices is skating to the puck.

So while the next video platform will need to work on all the devices we use today (phones, tablets, computers and TVs) I’d bet it will be most at home on the television. But winning on the TV will likely require a different economic approach (“just sell ads” won’t be sufficient). We’ll cover that in the next posttomorrow.

What if you re-invented television using the Internet, with it’s diversity and choice, and made it not just more open but more friendly as a result? Where a creator anywhere in the world could set up their own subscription video channel, supported by fans instead of ads. And where fans could get (and pay for!) just the channels they want, and watch on the device of their choice.

We launched something like that today with two big new additions to Showyou:

A Channel Store, where fans get exactly the channels they want, and can directly support the channels they love.

Why a subscription platform? Why not an ad-supported platform?

First, we think there is already a great free, open, ad-supported video platform — YouTube. We weren’t convinced the world really needed another.

Second, we believe that advertising isn’t always the best, or right, option for all creators, all of the time.

Advertising works great for channels that reach tens of millions, or hundreds of millions, of viewers. But what about the programming that’s important and compelling — essential, even — for 1000s, or 10,000s, or 100,000s of fans? What platform was built for them, and helps those creators to make a living?

For the last 20 years, the Internet has given us new ways to create things, to express ourselves, to entertain and to inform others. Where it’s fallen short is in enabling creators to make money to sustain their creative work. Many platforms have launched with the following approach: “Give it away for free, we’ll sell (or let you sell) some ads, maybe you’ll make some money.” It’s a little bit like a casino, where the house always wins and sometimes a creator draws a lucky hand.

Over the last 4-5 years, some platforms have been launched that begin to remedy that. We’re honored to share office space with one of those pioneers, Bandcamp, a great service that help artists sell their music (and merch!) directly to their fans and that gives artists a fair shake. We have been inspired by their journey, and also by platforms and services (Kickstarter, VHX, and Patreon to name a few) that help creators get paid, and help them to sustain their creative work.

We launched our subscription platform and channel store today because we wanted to give creators another option, a different kind of platform, that sustains and encourages new and different kinds of programming. That allows creators and producers to entertain, inspire, and inform their fans, and to be directly supported by those fans.

And if we can do a good job of helping creators, we’ll give their fans (and everyone, really) better television. With more diversity and choice, with programming from independent creators from all over the world, making interesting things for us all to watch, and where people experience the joy that comes from directly supporting creators you love, and getting exactly the channels you want.

In 1998, MP3 players were pretty crappy. With 32 MB of flash memory, my little Diamond Rio could hold only a handful of songs. Few people had the foresight to envision a world with a better device, with more memory, let alone to predict how such a device could upend the music business. Everyone assumed the labels would rule the world forever (indeed their revenues peaked two years later).

In 2003, SMS messaging traffic was burgeoning in Europe and Asia, and beginning to offer European and Asian wireless carriers at fat, margin rich stream of revenues. Symbian semi-smart phones were just coming on to the market, but few people had the foresight to envision a world with a better device, one open to the Internet, let alone foresee how these devices might give rise to a world of replacement services like iMessage and $19B apps like WhatsApp that would obliterate the carriers SMS rents. Everyone assumed the powerful wireless carriers would rule indefinitely.

Here we are in 2014, and you see similar dynamic playing out with the television. Today’s tablets and connected TV devices are the Diamond Rios or the Symbian smartphones of our day; if you’re paying careful attention, and have some vision, you can get a glimpse of the future. But some of the smartest analysts remain unpersuaded by these early developments and are the most bearish about the prospects for change (I’m thinking particularly of Peter Kafka & Ben Evans, both of whom I admire).

The argument they make for the status quo can essentially be paraphrased as follows:

Television network & cable executives know change is afoot, they’re smart (“unlike the labels”) and they’re not about to let someone eat their lunch.

They control the good content, and the distribution networks, and aren’t about to turn over there business to some upstart interloper (c.f., Intel Media).

Consumers haven’t really changed their habits that much; they seem to really like TV and continue to watch a lot of it.

Ipso facto, change is unlikely to come.

Their skepticism has some merit. Having been at this for nearly 20 years, trust me, I understand it.

*****

Change rarely arrives in the form we expect; not some zero sum disruption of new winners and displaced losers, but usually something more complicated and nuanced. The iPod and iTunes store did transform the music industry, but did so with the labels (who, while much smaller than they were, continue to exert dominant influence on the business).

The iPhone and Android have given us new messaging apps like WhatsApp, Line, and WeChat, and demolished the carriers margin-rich SMS revenues, but in many ways they’ve only deepened our dependency on our wireless networks and the carriers who operate them.

Foreseeable changes in distribution transformed these businesses, gave rise to new empires, and co-opted or bolstered old businesses at the same time. This is the fate that awaits the television business.

As we begin to connect the Internet to billions of TV viewing screens (not just TVs, but also tablets) the television business will be transformed. It would be a mistake to conclude that because the future isn’t yet here, change is unlikely to come.

But it won’t come in the tidy zero-sum disruption narrative we’ve been told to expect. Old businesses will continue to thrive as they take advantage of and in some ways co-opt the new distribution platform. And big new companies will be birthed.

1. A first-rate version of Showyou on the web, with the biggest collection of hand-picked videos on the Internet — over 105 million, all picked by our users and their friends and people they follow on Twitter, Facebook, YouTube; and

2. An update that brings our already great Android app to parity with our award-winning iPhone and iPad apps.

These new products, together with the Channel Platform we launched in June and our iOS apps, make Showyou something bigger than an app or website — it’s an end-to-end video platform:

Built by viewers, not uploaders;

Organized by taste, point-of-view, and interest;

That complements and indeed builds on top of existing, fantastic video services from YouTube and Vimeo;

That is mobile-first but works across all the screens and devices that matter to you, including your PC;

And that offers an experience that is as easy and fun and enjoyable to use as your TV.

Yesterday, I wrote about who might disrupt TV through the prism of Clayton Christensen’s “jobs-to-be-done” framework.

In case it’s not clear: our ambition is to make Showyou one of those services. We’ve applied for the job of entertaining you. Anytime (but especially in the evenings and on the weekends when you have some free time and want to relax); anywhere; on any device.

What should you expect when you turn on Showyou? That’ll you always find something interesting, entertaining, inspiring, and informative. Something you want to watch; with videos and channels related to your interests, your tastes, or from people who have a point-of-view you appreciate.

One other thing about the new Showyou.com? It’s maybe the most beautiful place on the Internet to watch a video. Enjoy.

The disruption to TV will happen, Ben argued, when different services come along that do these same jobs better and more cheaply.

It’s a handy framework for thinking through what the future of TV might look like, and applying it some of the disruptors start to come into focus.

For example, many of us have already hired Hulu+ and Netflix — with their reasonably deep catalogs of on-demand movies and TV shows — to entertain us in the evenings and on weekends. [2] As both of these services continue to grow their subscriber bases, they’ll be able to take on the other jobs cable networks do — fund the creation of great, compelling, original shows. Indeed, Netflix has already had success with House of Cards and Orange is the New Black.

Some people have hired services in completely different categories — games (on phones or consoles) and social networks (on phones, computers) especially.

At Showyou we’ve felt for a long while that the biggest, most likely disruptive force would be the the massive amount of online programming that is finally being made available on screens we actually use in the evenings and on the weekend — the television and new television-replacement screens (tablets, especially, but also PCs and mobile phones).

That makes YouTube another obvious potential winner in the contest to disrupt TV. And indeed YouTube already accounts for 17% of downstream traffic in the evening over “fixed access” networks (broadband wires coming into our homes).

But for many, using YouTube instead of TV still feels like too much work, with too little payoff; too much leaning forward when you want to lean back. The conceit of “video discovery” services has been that if you could just organize all this, they’d be among the winners, but that hasn’t happened yet. [3]

Whether you are YouTube or a startup, we think you have to do the following to have a shot at bringing the bounty of the Internet, and disrupting TV as a result:

1. Make your service as easy as TV

A huge part of the appeal of the television is that we don’t have to think too hard. Grab the remote and your off. Stated in a different way: one of the jobs TV does is that it allows us not to think. Your service has to do that too, or it won’t be hired.

2. Focus on “the what” not the “how”

People need to know what specific job they’re hiring you to do. When you say you’re delivering “videos picked by friends,” or “videos from your social networks,” you’re describing the how, not the what. Give people a reliable, tangible, concrete way to understand the programming they’re going to get to watch; how I’m going to be entertained, inspired, or informed by the programming. [4]

3. There is no first screen

People will expect your service to be everywhere. We may still turn to the television more than any other screen, but it’s hold on our lives is slipping with each passing month. There is no first screen anymore. In our house, most video viewing happens across iPads and PCs. The TV is only rarely on. That’s not the national norm, yet, but it’s most certainly the direction we’re headed.

4. Aggregation Wins

You need to deliver something of sufficient value and depth that people will want to use your service multiple times a week, for an hour or two at a time.

Netflix, Hulu, and YouTube of course all do this. The landscape favors aggregators. Not only for the depth of programming they offer, but also the consistency and quality of experience. The winners in this space will need to make simple, fun-to-use services across multiple platforms (iOS, Android, web, and connected tv devices) that connect and interoperate with other online services.

The great, unknown question is how many services we’ll hire to replace TV. That’s where the metaphor of “channels-becoming-apps” breaks down. It’s unlikely we’ll each hire 20-30 apps to replace TV. It seems more likely we’ll hire between 5-10; a few that do the job of giving us premium, subscription-funded TV shows & movies (Hulu+, Netflix, maybe Amazon Prime) and a few to help us watch the rest of the Internet.

The winners, whomever they are, will be giant businesses. The Time Warners, Disneys, News Corps of the future.

NOTES

1. I’d argue it’s this, mainly: To entertain us in the evenings and on the weekends; to give us a way to escape and to relax after a day at work or in school. Ben suggests other specific jobs: to educate us, to inform us, to give us live coverage of sports, and to story-tell.

2. You could be pedantic and argue that Netflix and Hulu aren’t really disrupting TV, they’re simply delivering TV over IP. But the disruption we’re talking about is of cable television and its cost & economic structure. And Netflix and Hulu, even if they largely deliver traditional television and movie programming, provide a cheaper and better experience than television (watch when you want, on the device you want, where you want).

3. Hunter Walk and I discussed this in an online dialogue in the spring (read our dialogue here and here). Christensen’s “jobs to do” framework might be helpful here, too. It may sound counter-intuitive in this age of abundance, but it’s not clear “discovery” is not a job that needs doing. The problem isn’t that we don’t know what to watch; the problem is that there is too much we want to watch with too limited time. Another problem: media discovery — for video, music, news — speaks to the “how,” but what we want is the “what.” That may sound like sophistry, a semantic argument, but consider Pandora. People often describe it as music discovery. But Pandora consistently, emphatically talks about the what, not the how. That is an “Internet radio” service. The music genome algorithm that makes Pandora work — the discovery part — is a means, not the end.

4. One of the reasons we’ve focused so hard on “channels” with Showyou is to address this. We want you to know what you’re getting — a channel oriented around taste or point-of-view (from a person or publisher you follow on Showyou), or interest (more about this tomorrow).

I occasionally blog here about the mobile habits of my 15-year-old daughter and her friends. With two teens in the house, I get to do extensive anthropological research disguised as parenting.

Over the past six months, I’ve seen the following pattern emerge:

Instagram is used in a highly curated, edited way. It’s the public performance of your life.

Facebook is also used in a highly curated, edited way like Instagram.

Snapchat is used throughout the day for quick status updates (usually in the form of silly selfies).

But the service that she and her friends use most frequently is iMessage. Not SMS. Not WhatsApp. Not Kik. iMessage.

We know that US teens have expressed strong preference for iPhones. Android phones simply will not do. I think the iPhone is perceived as better, cooler, and (crucially) fancier — but I also suspect the desire for an iPhone is subtly reinforced by the fact that their peer group is using iMessage.

If this anecdotal trend I’ve observed is indeed widespread, I think the launch of a cheaper 5c could be a powerful move, one that helps to drive lock-in among teens because of the importance of iMessage in their lives.